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From California to Texas, OEM dealer parts managers are
sounding off about the growing problem of excessive returns by their
body shop customers. The parts managers say their already paper thin
profit margins are being eroded by body shops returning more and more
parts, both damaged and undamaged. There are reports of return rates as
high as 25% from some shops.
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| Pena |
Parts managers offer several reasons
for the excessive returns, including: cycle time pressures that
encourage ordering parts "in case we need them"; parts orders based on
estimates written by inexperienced insurance adjusters; and outright
fraud.
Tom
Kenan is the long-time parts manager at Pearson Ford in San Diego,
California, a big wholesaler of sheet metal parts. He complained, "It's
to a point where it's almost unmanageable. I have two people who spend
their entire day checking in returned parts and writing credits."
Kenan
acknowledges that a certain percentage of sheet metal parts will be
returned because they arrive damaged, and he has no problem with
damaged parts that are promptly returned. "But with these DRP programs
and the tight turnaround times they place on body shops, the shops are
ordering things they don't know if they'll need, 'just to be sure.'
Many of these parts are inside things like an inner wheel house panel."
Kenan
said that such parts are only stocked at national parts depots, so he
ends up special ordering and then returning them. "And Ford is now
charging us a 20% restock fee on these parts." The problem, says Kenan,
is that most dealers don't pass the restock fees through to the shops.
They just absorb them, fearful that the shops will start ordering their
parts from another dealer who promises no restock fees.
Restocking charges raise a fuss
While
Kenan admits, "I'm as chicken as the next guy (about charging a restock
fee), and I certainly don't want to run my customers off," he said that
with returns now averaging 13-15%, he's had to start charging a restock
fee to shops that abuse the system. "It's causing quite a bit of flack."
Insurers are squeezing shops
"Oh,
man, it's terrible," said Jeff Dahl, assistant parts manager at Crown
Dodge in Houston. "Some shops will order parts just to get the invoice,
then return them." Dahl characterized most of his customers as "real
good, straight up guys. The insurance companies are squeezing them
tight, though."
Despite high returns,
Crown Dodge charges no restocking fees because "the competitive market
in Houston won't permit it," according to Dahl.
Beto
Pena at Toyota of Irving (Irving, Texas) said that while he couldn't
point to any increase in returns, "We're fully aware of when shops are
ordering parts they most likely are not going to use - things like
frame rails and aprons. They just want the invoice."
Pena
said that his returns policy remains "very lenient. There is no restock
fee and we're not going to refuse any reasonable return. Our market is
too competitive."
Recently, he had a
regular customer drive up with a truck load of parts to return, some
more than six months old. "He'll get a courtesy call from me,
explaining our policies."
Pena said he expects returns of 7 -
9%, but that 11% or more makes him take notice. He noted that smaller
shops that don't have a parts manager are more likely to delay in
returning the parts. "They get behind. We have an open door policy to
help them. Some will take advantage of us. But you know, when I look at
it in relation to the tragedy in New York, it doesn't seem like such a
big deal."
Sticking to invoice terms
At Gilman
Mitsubishi North in Houston, Parts Manager Lannie Appleby was not
overly concerned with returns but noted that, with regard to restocking
fees, "More and more we're sticking to the terms of our invoice," which
he said provides for restocking fees on special order parts and
requires that all parts be returned within 30 days. "If enough dealers
do this, maybe it (late returns) will slow down."
During last
summer, repair shops and dealers in Southern California received
various faxes about the problem from a company called Automotive
Consulting, Inc. with a Riverside, California address. There was no
phone number and the street address given on the fax was an empty lot.
The fax to dealers suggested that if they didn't start charging
restocking fees and reducing excessive discounts, they would be forced
out of the wholesale business
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